Odds of a Major Correction Increasing

Investor’s first read – Daily edge before the open
DJIA: 17,732
S&P 500: 2,079
Nasdaq Comp.4,848:
Russell 2000:1,150
Tuesday, June 14, 2016 9:03 a.m.
The FOMC meets this week with a Fed Chief Yellen press conference at 2:30 tomorrow. The rate increase that Yellen hinted may occur as recently as May 27 is no longer expected with concerns now shifted to the economy and Brexit on the 23d.
The retail sales report at 8:30 showed a gain of 0.5 pct. in May, but the Redbook were not available in time for this post. Retail sales are becoming more and more important, due to the closing of a lot of mall stores, such as Ralph Lauren, Macy’s, Barnes & Noble, Sears, Staples, Gap, and Wal-Mart.
The trend in motor vehicle sales will become more and more important going forward after a 6.1% drop in May.
The markets took a hit Friday and yesterday, a sign of rally fatigue and jitters about the economy here and abroad and the Brexit June 23.
My “Last rally before a plunge” that started May 19 is now in a correction phase where only a powerful rebound can keep it from turning into the plunge I have been expecting.
The market is faced with two major negatives and several smaller potential negatives. One, the FOMC announcement about interest rates at 2:00 tomorrow, but more importantly Fed Chief Janet Yellen’s comments at her press conference at 2:30. The Street is most interested in what she will say about a rate increase July 26.
Two, the Brits decision to leave or stay in the EU (Brexit) Thursday, June 23.
I don’t expect much from Yellen, and I would be surprised if the Brits exit the EU. Recent polls are showing more are more support for exiting, so expect angst until we know for sure.
Expect a rebound if the Brits “stay.”
Other issues of significance include auto and retail sales and the election.
The burden of proof is now squarely on the bulls. Failure to hold the line here paves the way for a correction that will struggle to find a bottom in September/October.

SUPPORT “today”: DJIA:17,563; S&P 500:2,057; Nasdaq Comp.:4,786
RESISTANCE :today”: DJIA:17,796; S&P 500:2,087; Nasdaq Comp.:4,867.
On occasion, I technically analyze each of the 30 DJIA stocks for a reasonable risk, a more extreme risk, and an upside potential over the near-term. I add the results of each, then divide by the new DJIA “divisor” (0.14602) to get the DJIA for those levels. This gives me an internal check on the DJIA itself, especially if certain higher priced stocks are distorting the averages.
As of May 26, 2016, a reasonable risk is 17,656 a more extreme risk is 17,526. Near-term upside potential is 17,963.
(I will repeat this regularly to keep readers aware of the potential for an April correction)
The market is tracking a pattern for presidential election years where an administration is in its second term.* The news is bad.
Historically, these markets have declined in Jan./Feb., rallied in March then topped out in early April, plunged in May with brief rallies in June and August and a plunge into October prior to the election.
Corrections started in spring in each of the last six years, the biggest being 19.8% in 2011, and smallest 2.3% in 2,014.
They started: 2010 (Apr. 26), 2011(May 2), 2012 (May 1), 2013 (May 22), 2014 ( May 13), 2 015 (May 15). The 2014 correction was insignificant, the 2015 more of a trading peak that trended sideways-to-down before the August flash crash.
So far, Q1 earnings are mixed-to-slightly better than projected. The key will be guidance and projections for Q3 and Q4.
 STATUS OF MARKET: Neutral – but very, very vulnerable. Expect volatility
 OPPORTUNITY: RISK: Risk high, Profit taking justified.
 CASH RESERVE: 45%. Consider 75% now if tolerance for risk is low.
 KEY FACTORS: Outlook for Q2, and 2016 earnings questionable. Fed has market under its spell.
Note: Source of weekly economic calendar and good recap of indicators: mam.econoday.com.
*Stock Trader’s Almanac
George Brooks
Investor’s first read
A Game-On Analysis, LLC publication
Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer. Neither Game-On Analysis, LLC, nor George Brooks is registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.

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